Online Shoppers Brace For Sales Tax Measure

The U.S. Senate is poised to pass the Marketplace Fairness Act that allows states to collect taxes from out-of-state merchants. Tax policy experts say this long-sought bill brings fairness to the tax system and much needed money to state and local governments. But small online sellers are incensed at what they see as a new tax burden.

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Attention online shoppers: you might soon to have to pay sales tax. The United States Senate is poised, this week, to pass a bill that could hike the price of online goods slightly depending on what state you live in. From member station WSHU, Charles Lane tells us who loves the bill and who doesn't.

CHARLES LANE, BYLINE: OK. So the plan is to play a small practical joke on my brother. "Buns of Steel" DVD. See, he gained a bit of weight and I'm taking the eternal right given to all older brothers worldwide and poking fun at him.

(SOUNDBITE OF DVD)

UNIDENTIFIED MAN: You can do it. You want to see the results?

LANE: All for the bargain price of $19 and, yep, sales tax: a buck-69. But if I have the DVD shipped to my brother in Colorado - sales tax gone.

KIM RUEBEN: It is not really legal, but it is practically unenforceable.

LANE: Kim Rueben is a state tax expert for the non-partisan Tax Policy Institute. She says because my "Buns of Steel" seller and I are located in the same state, New York, sales tax has to be collected. But when it's shipped out of state, the onus falls on, well, my brother, to add the tax to his annual income tax. Hardly anyone does this and states have noticed.

RUEBEN: I think, over time, sales tax revenues have been eroding for two reasons. One, because more and more sales are going online.

LANE: For years now, states have been pushing Congress to pass some sort of law allowing them to collect local sales tax from online and catalog purchases. The latest rendition is called the Marketplace Fairness Act. It essentially would force my "Buns of Steel" purveyor to collect the proper sales tax in my brother's home state and send it in.

There's a couple qualifications. One: the online retailer has to gross more than a million dollars in sales per year. And two: states have to make it easy for companies to know and remit the tax. But that's actually the tricky part. Kathy Terrill sells my "Buns of Steel" video and other fitness DVDs on eBay, which has lobbied hard to stop the Marketplace Fairness Act. Terrill says the bill would force her into a grueling process involving all but the five states without sales tax.

KATHY TERRILL: You have to go online. You have to set up an account. You have to give them access to your bank account. That takes, depending upon your facility on the Internet, anywhere from an hour to an hour and a half. That means I'm going to have to go online to do that with 45 states. That means you have 45 accounts with all these states.

LANE: Lobbyists against the Marketplace Fairness Act argue that there are some 10,000 taxing jurisdictions in the country. Selling retro fitness DVDs is easy compared to something like, say, candy or clothing, which could fall into a dizzying array of different tax categories and tax rates. Supporters of the bill say there are companies that can automate this for a small cost to the states, and free to smaller retailers.

For large-volume retailers, this cost of tracking, collecting, and remitting the tax does start to add up. But Don Bruce, an economist at the University of Tennessee, says this cost is negligible to doing online businesses. He says people won't abandon online shopping for brick and mortar just because of a sales tax.

DON BRUCE: Nowadays people shop online because it's efficient. It's convenient. If you're willing to wait a day or two, and even the wait times are going down dramatically, the gap between the two is quickly closing.

LANE: Bruce calculates states missed out on about $11 billion in sales tax revenue in 2012. That's money once spent on roads, schools, and other local services. The White House says President Obama would sign the Marketplace Fairness Act, but the U.S. House of Representatives has yet to signal when or if it would take up the measure.

But given the rare bipartisan support in the Senate, it might be wise for me to buy my "Buns of Steel" sooner rather than later. For NPR News, I'm Charles Lane.